GRAVITY Reports Second Quarter of 2014 Results

(August 27, 2014)

SEOUL, South Korea, Aug. 27, 2014 (GLOBE NEWSWIRE) -- GRAVITY Co., Ltd. (Nasdaq:GRVY) ("Gravity" or "Company"), an online game developer and publisher based in South Korea, today announced its unaudited financial results for the second quarter ended June 30, 2014, prepared in accordance with generally accepted accounting principles in the United States.

Revenues for the second quarter ended June 30, 2014 was KRW 10,248 million (US$ 10,130 thousand), representing a 4.8% decrease from KRW 10,767 million for the first quarter ended March 31, 2014 ("QoQ") and a 19.9% decrease from KRW 12,788 million for the second quarter ended June 30, 2013 ("YoY").

Revenues

Royalty and license fee revenues for the second quarter of 2014 were KRW 3,402 million (US$ 3,363 thousand), representing a 4.8% decrease QoQ from KRW 3,575 million and a 38.6% decrease YoY from KRW 5,543 million. The decrease QoQ was primarily due to decreased revenues from Ragnarok Online in Taiwan, Hong Kong and Macau. The decrease YoY resulted mostly from decreased revenues from Ragnarok Online in Japan and China.

Subscription revenues for the second quarter of 2014 were KRW 1,589 million (US$ 1,571 thousand), representing a 15.9% decrease QoQ from KRW 1,890 million and a 44.0% decrease YoY from KRW 2,836 million. The decrease QoQ was mainly attributable to a decrease in revenues from Ragnarok Online in Korea. The decrease YoY was largely due to decreased revenues from Ragnarok Online II in the United States and Canada.

Mobile game revenues were KRW 4,120 million (US$ 4,073 thousand) for the second quarter of 2014, representing a 4.6% decrease QoQ from KRW 4,317 million but a 15.7% increase YoY from KRW 3,560 million. The decrease QoQ resulted primarily from decreased revenues from NeoCyon's mobile game operation service for a third party and from Road to Dragons. The increase YoY was mostly driven by Ragnarok: Path of Heroes, an updated version of Ragnarok Online – Uprising: Valkyrie, which was launched in March 2014.

Character merchandising and other revenues were KRW 1,137 million (US$ 1,123 thousand) for the second quarter of 2014, representing a 15.4% increase QoQ from KRW 985 million and a 33.9% increase YoY from KRW 849 million.

Cost of Revenue and Operating Expenses

Cost of revenue was KRW 8,882 million (US$ 8,780 thousand) for the second quarter of 2014, representing a 6.2% decrease QoQ from KRW 9,467 million but a 5.2% increase YoY from KRW 8,439 million. The decrease QoQ was mostly from decreased salaries primarily resulting from a decrease in salaries for the headquarters mostly due to a decrease in the number of employees. The increase YoY was mainly attributable to increased outsourcing fee and commission paid mostly related to our services provided to third parties.

Operating expenses were KRW 4,069 million (US$ 4,022 thousand) for the second quarter of 2014, representing a 2.6% decrease QoQ from KRW 4,178 million and a 43.1% decrease YoY from KRW 7,155 million. The decrease QoQ was mainly due to decreased salaries. The decrease YoY mostly resulted from i) a decrease in research and development expenses primarily due to the expenses to develop Ragnarok Odyssey Ace for the PlayStation Vita platform in the second quarter of 2013, which did not occur in the second quarter of 2014; ii) decreased advertising expenses; iii) impairment loss on intangible assets in the second quarter of 2013, which did not occur in the second quarter of 2014; and iv) decreased salaries.

Loss before income tax expenses and others was KRW 2,665 million (US$ 2,634 thousand) for the second quarter of 2014 compared with loss before income tax expenses and others of KRW 2,503 million for the first quarter of 2014 and loss before income tax expenses and others of KRW 1,020 million for the second quarter of 2013.

As a result of the foregoing factors, Gravity recorded a net loss attributable to parent company of KRW 3,031 million (US$ 2,996 thousand) for the second quarter of 2014 compared with a net loss attributable to parent company of KRW 2,969 million for the first quarter of 2014 and a net loss attributable to parent company of KRW 1,617 million for the second quarter of 2013.

The balance of cash and cash equivalents and short-term financial instruments was KRW 43,915 million (US$ 43,411 thousand) as of June 30, 2014.

Note: For convenience purposes only, the KRW amounts have been expressed in U.S. dollars at the exchange rate of KRW 1,011.6 to US$ 1.00, the noon buying rate in effect on June 30, 2014 as quoted by the Federal Reserve Bank of New York.

About GRAVITY Co., Ltd.

Based in Korea, Gravity is a developer and publisher of online games. Gravity's principal product, Ragnarok Online, is a popular online game in many markets, including Japan, Taiwan and Thailand, and is currently commercially offered in 60 markets. For more information about Gravity, please visit http://www.gravity.co.kr.

Forward-Looking Statements:

Certain statements in this press release may include, in addition to historical information, "forward-looking statements" within the meaning of the "safe-harbor" provisions of the U.S. Private Securities Litigation Reform Act 1995. Forward-looking statements can generally be identified by the use of forward-looking terminology, such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe" "project," or "continue" or the negative thereof or other similar words, although not all forward-looking statements contain these words. Investors should consider the information contained in our submissions and filings with the United States Securities and Exchange Commission (the "SEC"), including our annual report for the fiscal year ended December 31, 2013 on Form 20-F, together with such other documents that we may submit to or file with the SEC from time to time, on Form 6-K. The forward-looking statements speak only as of this press release and we assume no duty to update them to reflect new, changing or unanticipated events or circumstances.

GRAVITY CO., LTD.

Consolidated Balance Sheet

(In millions of KRW and in thousands of US$)

As of

31-Dec-13

30-Jun-14

KRW

US$

KRW

US$

Assets

(audited)

(unaudited)

(unaudited)

(unaudited)

Current assets:

Cash and cash equivalents

31,222

30,864

24,415

24,135

Short-term financial instruments

18,000

17,794

19,500

19,276

Accounts receivable, net

5,333

5,272

4,775

4,720

Other current assets

4,096

4,049

3,949

3,904

Total current assets

58,651

57,979

52,639

52,035

Property and equipment, net

2,315

2,289

1,697

1,678

Leasehold and other deposits

5,569

5,505

5,558

5,494

Intangible assets

13,919

13,759

11,965

11,828

Other non-current assets

7,311

7,227

7,284

7,200

Total assets

87,765

86,759

79,143

78,235

Liabilities and Equity

Current liabilities:

Accounts payable

4,374

4,324

2,762

2,730

Deferred revenue

5,782

5,716

5,607

5,543

Other current liabilities

1,244

1,229

1,496

1,479

Total current liabilities

11,400

11,269

9,865

9,752

Long-term deferred revenue

6,875

6,796

5,828

5,761

Accrued severance benefits

263

260

175

173

Other non-current liabilities

227

225

160

158

Total liabilities

18,765

18,550

16,028

15,844

Common shares

3,474

3,434

3,474

3,434

Additional paid-in capital

75,076

74,215

63,656

62,926

Accumulated deficit(1)

(10,889)

(10,764)

(5,469)

(5,406)

Accumulated other comprehensive income

1,674

1,655

1,727

1,707

Total parent company shareholders' equity

69,335

68,540

63,388

62,661

Non-controlling interest

(335)

(331)

(273)

(270)

Total equity

69,000

68,209

63,115

62,391

Total liabilities and equity

87,765

86,759

79,143

78,235

* For convenience, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,011.6 to US$1.00, the noon buying rate in effect on June 30, 2014 as quoted by the Federal Reserve Bank of New York.

(1) The Company disposed the accumulated deficit by transferring KRW 11,420 million out of KRW 75,076 million of its additional paid-in capital in the fiscal year 2013.

GRAVITY CO., LTD.

Consolidated Statements of Operations

(In millions of KRW and in thousands of US$, except for share and ADS data)

Three months ended

Six months ended

31-Mar-14

30-Jun-13

30-Jun-14

30-Jun-13

30-Jun-14

(KRW)

(KRW)

(KRW)

(US$)

(KRW)

(KRW)

(US$)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Revenues:

Online games-subscription revenue

1,890

2,836

1,589

1,571

4,784

3,479

3,439

Online games-royalties and license fees

3,575

5,543

3,402

3,363

12,197

6,977

6,897

Mobile games and applications(1)

4,317

3,560

4,120

4,073

5,883

8,437

8,340

Character merchandising and other revenue(1)

985

849

1,137

1,123

1,720

2,122

2,098

Total net revenue

10,767

12,788

10,248

10,130

24,584

21,015

20,774

Cost of revenue

9,467

8,439

8,882

8,780

15,836

18,349

18,139

Gross profit

1,300

4,349

1,366

1,350

8,748

2,666

2,635

Operating expenses:

Selling, general and administrative

3,366

4,512

3,091

3,055

8,919

6,457

6,383

Research and development

812

2,061

978

967

3,453

1,790

1,769

Impairment losses on intangible assets

ㅡ

582

ㅡ

ㅡ

734

ㅡ

ㅡ

Total operating expenses

4,178

7,155

4,069

4,022

13,106

8,247

8,152

Operating loss

(2,878)

(2,806)

(2,703)

(2,672)

(4,358)

(5,581)

(5,517)

Other income (expenses):

Interest income

282

345

276

273

715

558

552

Interest expense

(3)

(14)

(4)

(4)

(25)

(7)

(7)

Foreign currency income (loss), net

96

230

(234)

(231)

290

(138)

(137)

Others, net

ㅡ

1,225

ㅡ

ㅡ

1,225

ㅡ

ㅡ

Loss before income tax expenses and equity loss on investments

(2,503)

(1,020)

(2,665)

(2,634)

(2,153)

(5,168)

(5,109)

Income tax expenses

410

720

359

355

1,595

769

760

Loss before equity loss on investments

(2,913)

(1,740)

(3,024)

(2,989)

(3,748)

(5,937)

(5,869)

Equity loss on investments

ㅡ

ㅡ

ㅡ

ㅡ

(23)

ㅡ

ㅡ

Net loss

(2,913)

(1,740)

(3,024)

(2,989)

(3,771)

(5,937)

(5,869)

Net income (loss) attributable to:

Non-controlling interest

56

(123)

7

7

(525)

63

62

Parent company

(2,969)

(1,617)

(3,031)

(2,996)

(3,246)

(6,000)

(5,931)

Loss per share

- Basic and diluted

(427)

(233)

(436)

(0.43)

(467)

(863)

(0.85)

Weighted average number of shares outstanding

- Basic and diluted

6,948,900

6,948,900

6,948,900

6,948,900

6,948,900

6,948,900

6,948,900

Loss per ADS(2)

- Basic and diluted

(107)

(58)

(109)

(0.11)

(117)

(216)

(0.21)

* For convenience, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,011.6 to US$1.00, the noon buying rate in effect on June 30, 2014 as quoted by the Federal Reserve Bank of New York.

(1) The Company reclassified certain revenue within Mobile games and applications revenue as Character merchandising and other revenue in 2013 as this better represents the nature of the revenue, and the effect of such reclassification was reflected in each quarter of 2013. The reclassification has no effect on the Company's previously reported total net revenue and other line items on the consolidated financial statements.